Woodford fund freeze 'undermines trust' in whole industry

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Fund manager Neil Woodford. Photo: YouTube/Woodford Investment Management.

The shuttering of high-profile fund manager Neil Woodford’s flagship fund is hurting the whole investment industry, according to a leading stock broker CEO.

“It undermined people’s trust in financial services, it undermines people’s confidence to invest, and that has a negative impact for all of us at a time when volumes have been relatively weak,” Richard Stone, CEO of The Share Centre, told Yahoo Finance UK.

“It’s not good for the investment industry as a whole.”

The Woodford Equity Income fund was frozen at the start of June after a liquidity crunch. Neil Woodford, who was once seen as one of the best money managers in England, had invested in a lot of illiquid assets like private company stock and was unable to offload his investments in time to meet redemptions.

READ MORE: Star fund manager Neil Woodford 'sailed close to the wind'

The freeze has left thousands of investors unable to withdraw £3.7bn. The incident has sparked an official investigation by the Financial Conduct Authority and dealt serious damage to Woodford’s reputation.

“When you then look at dealing volumes and fund flows, it’s not surprising that investors are more reluctant at the moment given both the political backdrop and a run of stories that suggest that not all is as it should be with some of these financial services providers,” Stone said.

“All of that is fundamentally damaging to investor confidence.”

The Share Centre CEO Richard Stone. Photo: The Share Centre/Paul Wilkinson Photography

The Share Centre is an execution only stock dealing platform. The company has over 300,000 retail customers in the UK and manages around £5bn of assets.

Stone said only “a very small proportion of our investor base” have exposure to the frozen Woodford fund, either directly or through two fund of funds run by The Share Centre.

Bank of England governor Mark Carney has said funds like Woodford’s are “built on a lie” of daily liquidity and Stone called for “a fundamental review and overhaul is in how the rules are defined.”

READ MORE: Funds like Woodford 'built on a lie' and 'fundamental questions' ignored

“I think it raises issues about access to private capital,” Stone told Yahoo Finance UK. “Where have returns been concentrated in the last 10 years? What has happened to the number of listed companies? It’s halved. Has that shift in capital markets and returns over the last 10 years driven fund managers to seek those returns in unlisted private capital? The issue here is it was done in a vehicle in which it wasn’t appropriate.

“Clearly he’s responsible, I’m just saying there are a number of macro issues that you have to look at in this context as well.”

Stone also told Yahoo Finance UK he believes there should be a second Brexit referendum if the UK looks likely to leave without a deal. Stone, a Brexit supporter, questioned the “democratic mandate” for no deal but said he would still vote to leave in any re-run.

————

Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

Read more: